A bank's registered capital- Acleda bank

[Scouse123]

Hi,

This is a question please for anybody with experience in accountancy or similar.

Why does a bank in Cambodia continually keep raising its registered capital by introducing on the balance sheet, additional capital, (gained from the banks profits) on a yearly basis?

Acleda bank keeps doing this and I am really interested to know as for what purpose. More to the point, what is the benefit to the bank or customer????

This is nothing to do with monies on deposit with the central bank which is a completely separate issue and I know that is there as a guarantee of the bank to prove its worthiness to operate.

[NeverSure]

The short answer is that retained earnings always add to capital. It's profit that increases net worth ie capital. Edit: Some net earnings may be paid out to stockholders as dividends and aren't therefore "retained."

The next short answer is that I would never trust a bank in a third world country, as we know of direct instances where their statements of condition are untrue.

The long answer. Bank accounting is confusing to the newcomer, even an accountant. That's because the bank's books are a mirror image of the community at large. For instance a bank checking account balance would be an asset to the rest of us - money we have in the bank. But to a bank that same checking account listed under deposit accounts on its statement is a Liability - money it owes a customer. Bank deposit accounts in a bank are debts the bank owes to depositors.

Loans on the books are bank assets - money owed to the bank, while to the rest of us the same auto or real estate loan on our books would be a liability. I worked as a banker for many years and it took me about three years to able to automatically see cash in the vault as belonging to customers and therefore a liability to the bank. Well, three years including all of the other things that go with that. Anywhere else cash on hand and on the books is a liquid asset.

Don't expect to become fluent in bank lingo overnight.

[Scouse123]

Thanks Neversure so much for your answer.

I was referring to Acleda bank specifically as I have quite a substantial amount with both them and Canadia bank on deposit and just thought that I was best with those two as they are the top two in Cambodia and my thinking was, if they were to go down, so would Cambodia in effect!

Acleda has about 900,000 customers out of a population of only 15 million people.

You have me concerned slightly now regards your points raised regarding third world banks. I thought funds were safe in those two banks for reasons mentioned above plus Acleda has a Standard and poor rating and 49% is held by reputable foreign companies who know what they are doing in business.

Interest rates on deposits are now dreadful in Thailand and indeed Thai banks are rapidly opening in Cambodia.

Bangkok bank being the most recent to open in Phnom Penn after an absence of many years. However, these banks only open subsidiary banks to my knowledge, Bangkok bank ( Cambodia ) Ltd. that must sink or swim on their own in that particular country without recourse to their main banking institution/ parent company in the country of origin.

Would I be better foregoing the interest and moving the funds back to Thailand?? These are now my thoughts. Although they say Thailand economy will remain sluggish this year and possibly next with the present government. Cambodia is forecast to grow at 6-7% over the same period, albeit a far smaller economy but far better deposit rates!!

[NeverSure]

I don't have an opinion of any one bank because I haven't been part of a team that physically audited it. S&P can only grade on what is sees, and is told if you know what I mean.

In the US, either a state or federal auditing team audits every branch of every bank to the penny, including sending out random letters to customers to verify that loans are real and that deposit amounts are real. This is done at unannounced times and at at least once a year for everyone. You can trust the numbers even if they are bad and it's this tight accounting that caused some of them to state they were broke in 2007. Due only to federal bailouts, mergers and insurance by the FDIC, no depositor lost money.

I don't trust Thai banks either. I see things I don't like, and I mean I really don't like. I transfer about 100k baht at a time. What good are higher interest rates if the money is at risk? Up to you but for me as I said, no third world banks.

[simple1]

OP you may like to register to gain some insight into Acleda bank's performance at

http://www.thebankerdatabase.com/index.cfm/banks/34/Acleda-Bank

In addition compliance to Basel guidelines is a reasonable indicator of risk. Cambodian Banks compliance is briefly mentioned at URL below and they are currently falling behind.

http://www.financeasia.com/News/389839,asia-pac-banks-sail-through-basel-iii-transition.aspx

What are the Basel accords?

https://en.wikipedia.org/wiki/Basel_III

[TheSiemReaper]

All Cambodian banks are junk rated or below. Why do you think they pay out such incredibly good interest rates on savings? It's because they are risky investments. They are doubly risky in a country with no formal investor protection laws (assumed government insurance is worth the same as assuming I've insured your deposits - which for the record I haven't). It is considered highly likely that only 4 Cambodian banks are actually viable in the long-term this includes both Acleda and Canadia. Many of the others will either go broke or be bought in M&A activity which provides very little additional value to account holders.

As for only 900,000 accounts out of 15 million people... you'll find that approximately 12 million of those 15 million (or possibly more) hold no accounts at any banks whatsoever. Most Khmer are not paid into their bank accounts, they're paid in cash. Most of them will spend 100% of that cash in the same month as it is earned. They don't have any spare to save and next to no-one has a credit card that needs paying off either...

[Scouse123]

Hi Simple1,

I read as much as I could on the links you sent. Unfortunately, a lot of the information is locked unless you join a regular subscription.

I have looked at all the figures released by Acleda bank on an annual basis in their certified accounts and I am aware they are only as good as the information they are given in information supplied by the bank. However, that said, the information in your links that could be read and charts supplied were favorable to the bank in terms of its " gearing " such as loans to deposits, and loans to capital etc.

The more recent Basel tier implications and systems are obviously going to be adhered to initially by the star banking institutions of the region as in Singapore, certain Chinese banks and others.Less developed nations and fledgeling economies will always be playing catch up.

Acleda bank is also the only Cambodian bank with any international rating of any description such as the outlook from Standard and poor.

Out of any bank in the crowded banking sector in Cambodia, I think they are the safest/best risk although I am far from knowledgeable on such affairs and no expert by any means.

I appreciate any and all advice regards these banks so thank you very much for your help.

[Scouse123]

All Cambodian banks are junk rated or below. Why do you think they pay out such incredibly good interest rates on savings? It's because they are risky investments. They are doubly risky in a country with no formal investor protection laws (assumed government insurance is worth the same as assuming I've insured your deposits - which for the record I haven't). It is considered highly likely that only 4 Cambodian banks are actually viable in the long-term this includes both Acleda and Canadia. Many of the others will either go broke or be bought in M&A activity which provides very little additional value to account holders.

As for only 900,000 accounts out of 15 million people... you'll find that approximately 12 million of those 15 million (or possibly more) hold no accounts at any banks whatsoever. Most Khmer are not paid into their bank accounts, they're paid in cash. Most of them will spend 100% of that cash in the same month as it is earned. They don't have any spare to save and next to no-one has a credit card that needs paying off either...

Hi,

It doesn't always follow at all that they give good interest rates because they are risky banks nor were these viewed, until the banking crisis, as incredibly good interest rates. The Bank of Canada in Singapore until the crash of 2008 was paying 5% as the norm with no tax on interest.

There are many reasons for wanting deposits and paying decent interest such as expansion, updating their facilities, new branches etc etc.I also think Acleda charge in the region of 12% interest on loans if not mistaken and are very conservative in their valuations and have a cap on borrowing?

I was told they much prefer lending in the low and medium SME market as opposed to the big money construction projects and super malls etc

All the rest of your post I find very informative and useful. I wasn't aware how few actually had bank accounts in comparison to the population. I never thought about it like you put it, I was probably swallowed up in the merry go round of looking at all the development and spending taking place around Phnom Penn and Siem Reap.

You are most certainly right however, I believe, that Cambodia represents a " higher risk " than say Thailand does, with its far larger and more diverse economy.

Cheered by the fact you say that Acleda and Canadia are marked as two that will probably survive as being viable. I too, after plenty of reading and online studying came to the same conclusion. Thanks again for your input. Very much appreciated. I love to get the spin side of the coin from people on the ground or with the flow.

The guys working in the banks in Cambodia are not really managers as much as salespeople to be honest and as in every country, just tell us what we want to hear.

[TheSiemReaper]

All Cambodian banks are junk rated or below. Why do you think they pay out such incredibly good interest rates on savings? It's because they are risky investments. They are doubly risky in a country with no formal investor protection laws (assumed government insurance is worth the same as assuming I've insured your deposits - which for the record I haven't). It is considered highly likely that only 4 Cambodian banks are actually viable in the long-term this includes both Acleda and Canadia. Many of the others will either go broke or be bought in M&A activity which provides very little additional value to account holders.

As for only 900,000 accounts out of 15 million people... you'll find that approximately 12 million of those 15 million (or possibly more) hold no accounts at any banks whatsoever. Most Khmer are not paid into their bank accounts, they're paid in cash. Most of them will spend 100% of that cash in the same month as it is earned. They don't have any spare to save and next to no-one has a credit card that needs paying off either...

Hi,

It doesn't always follow at all that they give good interest rates because they are risky banks nor were these viewed, until the banking crisis, as incredibly good interest rates. The Bank of Canada in Singapore until the crash of 2008 was paying 5% as the norm with no tax on interest.

There are many reasons for wanting deposits and paying decent interest such as expansion, updating their facilities, new branches etc etc.I also think Acleda charge in the region of 12% interest on loans if not mistaken and are very conservative in their valuations and have a cap on borrowing?

I was told they much prefer lending in the low and medium SME market as opposed to the big money construction projects and super malls etc

All the rest of your post I find very informative and useful. I wasn't aware how few actually had bank accounts in comparison to the population. I never thought about it like you put it, I was probably swallowed up in the merry go round of looking at all the development and spending taking place around Phnom Penn and Siem Reap.

You are most certainly right however, I believe, that Cambodia represents a " higher risk " than say Thailand does, with its far larger and more diverse economy.

Cheered by the fact you say that Acleda and Canadia are marked as two that will probably survive as being viable. I too, after plenty of reading and online studying came to the same conclusion. Thanks again for your input. Very much appreciated. I love to get the spin side of the coin from people on the ground or with the flow.

The guys working in the banks in Cambodia are not really managers as much as salespeople to be honest and as in every country, just tell us what we want to hear.

While it's true that before the banking crisis good interest rates were attainable in safe havens - since that crisis the average rate of interest in safe havens has been hovering around 0%. Thus any return of 7-9% is going to be an indicator of the risk that you assume.

I come from a banking family... and got the hell out of banking before I started but the contamination is still there; interest rates are a measure of the risk you assume on pretty much every investment. I haven't got historical interest rates for Cambodia but I would bet they were higher pre-crisis than they are now.

Lending is one of the big problems for Cambodian banks, they don't know how to do it... so they have become obsessed with small stakes deals which show reasonable returns rather than gunning for the high-end business that a credible bank expects to win. Of course, the problem with many Cambodia-based firms is that they too lack credibility (and audited accounts). This may change in the mid-term as more companies clean up their act for local exchange listing, though I wouldn't put a shiny penny on clean acts, I'd expect to see something like China where banks are bribed to lie about cash flow and balances to auditors...